Times Observation: Using thunderous measures to strictly punish listed companies that ride the trend and hype concepts

Securities Times reporter Cheng Dan

Since this year, as interest in sectors such as brain-computer interfaces and commercial spaceflight has heated up, some listed companies have sought to ride on the trend through channels such as interactive platforms and announcements, attempting to drive their stock prices higher. Recently, multiple listed companies have received large fines for chasing trends and “riding hot topics.” The penalties not only target the companies involved, but also simultaneously hold accountable the actual controlling persons, directors, senior executives, and other “key minority” groups.

The China Securities Regulatory Commission’s stance is clear and resolute: any conduct that harms investors’ interests under the name of hyping concepts or riding hot topics will be investigated and dealt with strictly and promptly, with absolutely no tolerance. It is worth noting that the CSRC’s crackdown on riding hot topics is accelerating. In multiple cases, it has taken only a little more than a month from filing a case to issuing a penalty that was carried out. The fine amount in a single case reaches as much as several million yuan. It has also implemented joint and several accountability, using swift and forceful measures to curb the disorder of concept hype.

Although regulators continue to maintain a high-pressure posture, the phenomenon of riding hot topics still persists despite repeated prohibitions. Some “key minority” members, despite knowing it is not allowed, continue to take chances. The core issue lies in the fact that, in China’s capital market, the costs of violating laws and the benefits of violating laws are still not adequately balanced to a certain extent, and administrative penalties cannot form an effective deterrent.

From the perspective of legal characterization, when listed companies ride hot topics, they are often determined to constitute “misleading statements,” which falls within the scope of violations of regulations in information disclosure. Criminal accountability primarily relies on Article 161 of the Criminal Law of the PRC, “the crime of unlawful disclosure or failure to disclose material information.” However, because the threshold for this crime is relatively stringent, in practice it is difficult to establish and cases are rarely brought under criminal law. Under current provisions, accountability must meet “amounts are huge, consequences are serious, or there are other serious circumstances,” such as inflating assets, revenue, or profits by 30% or more over the relevant period, or failing to disclose major matters accounting for 50% or more of net assets, before prosecution can be triggered. The benchmark sentence is up to five years of fixed-term imprisonment or criminal detention. In addition, procedural barriers such as difficulty in determining subjective intent and complexities in proving causation lead many cases involving riding hot topics to remain at the administrative penalty stage, with very few moving on to criminal proceedings.

By contrast, in mature capital markets, conduct such as false statements and concept hype is incorporated into the category of securities fraud, and criminal accountability is normalized. Taking the U.S. market as an example, besides large civil damages, responsible individuals may be sentenced to up to 25 years in prison. For instance, a biotech company’s CEO was ultimately sentenced to 30 months of imprisonment for offenses such as securities fraud and insider trading after fabricating drug R&D progress and cashing out at high prices by riding a hot topic. All illegal gains were also confiscated. The strength of the punishment is enough to make market participants think twice.

In the face of enormous incentives, lower illegal costs may lead some listed companies to take risks. Only by further strengthening the mechanism for coordination and connection between administrative enforcement and criminal prosecution, lowering the threshold for criminal accountability, and tightening responsibility of “key minority” groups—can the illegal costs of riding hot topics be truly increased, and only then can market disorder be fundamentally cleaned up and the legitimate rights and interests of the broad number of small and medium investors be effectively protected.

(Responsible editor: Wang Zhiqiang HF013)

     【Disclaimer】This article only represents the author’s personal views and is not related to Hexun. The Hexun website remains neutral regarding the statements and judgments of views made in the article, and provides no express or implied guarantee as to the accuracy, reliability, or completeness of the content contained therein. Readers are requested to use it for reference only and assume all responsibility themselves. Email: news_center@staff.hexun.com

Report